Grain markets opened the week with a dovish reaction to the ‘Black Sea Corridor’ suspension of Russian exports. According to consultancy AgResource Brasil, the response was “appropriate”: “There is no doubt that some level of risk premium is necessary, but the perceived unease in global trade flows is much calmer than what was demonstrated in February.”
According to them, Ukraine will be able to work to ensure that currently loaded ships can go out with the help of Turkey and the United Nations (UN). Ukrainian exports were already expected to be lower and the market doesn’t believe Russian exports will drop to zero as prices have attracted buyers in Africa and the Middle East.
AgResource believes more wheat than corn is at risk of not finding the world market compared to current USDA (United States Department of Agriculture) commercial grades. “Furthermore, the loss of wheat production in the Southern Hemisphere and the drought in the US Plains are adding to concerns,” they add.
According to a report by German bank Commerzbank analysts Carsten Fritsch and Thu Lan Nguyen, there are three reasons why prices have risen less than when Russia invaded Ukraine. The first is that corn and wheat prices are already trading at higher levels due to the Russian invasion, which already suggests a tight supply outlook.
Second, there was already speculation that Russia might not renew the agreement to export its grain a fact that was already priced in. Finally, the UN, with the help of Turkey, wants to intervene to keep Ukrainian exports going without Russia.
“Furthermore, the Russian ministry emphasized that it is not withdrawing from the agreement, only suspending its own engagement. The G20 countries are likely to pressure Russia at the latest during their November 1516 summit to reinstate the deal, meaning there is still a glimmer of hope that Ukrainian grain exports can do so
keep going,” emphasizes Commerzbank, according to which these are the main arguments for prices not to rise excessively, at least for the time being.
pessimistic scenario
On the other hand, the situation can change. “If attempts to persuade Russia to come back on board fail, or even if Russia attacks Ukrainian grain ships, a significant spike in grain prices is likely,” predict analysts at Deutsche Bank.